The Ambiguous Competitive Effects of Passive Partial Forward Integration

In a two-tier industry with an upstream monopolist supplier and downstream competition differentiated goods, we show that passive partial forward integration (PPFI) has ambiguous effects on welfare. When vertical trading is conducted via linear tariffs, PPFI pro-competitive welfare-increasing. While under two-part it anti-competitive welfare-decreasing. These hold irrespectively of the degree product differentiation, observability or secrecy contract terms, mode competition, distribution bargaining power between firms.